The rates riddle


M G Warrier's response*:        
August 9, 2019
The rates riddle
This refers to the piece “Why rate reductions haven't lifted credit growth” by Madan Sabnavis (The Hindu Business Line, August 9). Minus technical details, the conclusion is that lending rates have not come down commensurate with rate cuts by RBI.
Reducing interest rates on bank deposits beyond reasonable levels can have adverse social consequences like long term savings getting shifted to unsafe or insecure savings instruments outside banks and government.
As banks are not depending much on RBI for resources, the only variable which can be adjusted to reduce cost of credit may be the margins enjoyed by banks. That will involve more professionalism in fund management.
The other option would be to return to regulating interest rates selectively. May be MPC themselves may have to consider and suggest innovative alternatives to rate cut in the coming days.
M G Warrier, Mumbai
*Published on August 10, 2019 (Print edition)

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